New York/Washington: Will the Federal Reserve raise interest rates again this year? That’s the big question investors are hoping policy makers clarify when they conclude a two-day meeting Wednesday.

Fed officials are widely expected to leave rates unchanged as they announce a start date for the gradual unwinding of the US central bank’s $4.5 trillion balance sheet. That milestone, 10 years after the onset of the financial crisis, has been so well telegraphed by officials that it looks likely to be a non-event in financial markets.

The release of the policy-setting Federal Open Market Committee’s (FOMC) statement and updated economic and interest-rate projections is scheduled for 2pm in Washington, followed 30 minutes later by Fed chair Janet Yellen’s press conference.

Here’s what to watch for:

Yellen can expect to be asked, again, about whether she’s discussed her future with President Donald Trump, after it emerged that she had breakfast with his daughter Ivanka in July. Vice chairman Stanley Fischer, attending his final FOMC meeting this week, has further added to speculation about the Fed’s future leadership by unexpectedly announcing his decision to resign in mid-October. Trump said last week that he likes and respects Yellen but hasn’t made a decision yet about the next Fed chair. Yellen, whose term ends in February, has repeatedly deflected all questions on this topic and will probably do so again.

She should be more forthcoming on questions about the outlook for unemployment and inflation and what that means for the pace of rate increases. New FOMC projections will probably show more policy makers than not continue to favour another rate hike by the end of the year, as was the case when projections were last updated in June, according to a Bloomberg survey of 42 forecasters conducted 12-14 September.

A string of weak reports on consumer prices had suppressed expectations for another rate hike this year, but that view shifted when data for August showed inflation stabilizing. Investors now see the chances for a rate increase by year-end as back up to about 50-50, according to the prices of interest-rate futures contracts.

Tepid inflation

In her press conference, Yellen will probably avoid wading too far into a growing debate over why inflation has failed to pick up despite low unemployment. That’s because it’s too soon for Fed officials to abandon that framework for forecasting price pressures, said Josh Wright, chief economist at iCIMS Inc. in Matawan, New Jersey.

“She wants to communicate as little new information as possible,” said Wright, a former New York Fed economist, making the point that the FOMC will see three more months of data before its meeting in December. “Clearly we are at a very tricky moment in terms of what’s been going on with inflation data and what’s going to happen with the next rate hike, but there’s enough runway that she doesn’t need to” lay out all her thinking, he said.

In the Fed’s June projections, the median estimate of the long-run level of unemployment consistent with stable inflation was 4.6%. In August, the US jobless rate was 4.4%, just above the 16-year low it touched in May and July. Economists surveyed by Bloomberg see the long-run median edging down to 4.5%. A decline in estimates of this measure would help Yellen to explain why the steep drop in the jobless rate had failed to spur inflation as expected so far.

Hurricane Harvey

The FOMC’s post-meeting statement may also acknowledge the economic impact of Hurricane Harvey, which hit Texas in late August, according to Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York. He compared it to Hurricane Katrina, which the US government estimates caused $108 billion in damages when it struck in 2005.

“There is a good chance the growth assessment could mention the effects of Harvey but, like the post-Katrina statement, largely dismiss the chance that it poses ’a more persistent threat’ to growth,” Feroli wrote in a 15 September note to clients.

While the start of the process to shrink the Fed’s balance sheet is an important step in the normalization of post-crisis monetary policy, the details of when it will get under way will probably be a non-event for financial markets, said Gennadiy Goldberg, interest-rate strategist at TD Securities in New York.

Fed officials have been signalling for months that the announcement will likely come this week, and financial conditions have only gotten easier. The S&P 500 Index of shares in large US companies is at a record high, and long-term interest rates have drifted lower over the year, despite the FOMC’s decisions to raise short-term rates in March and June.

Even so, because the act of shrinking the balance sheet may be perceived as a tightening of monetary policy, it could encourage officials to go even slower with rate increases next year than the three that they projected in June.

“It might be a heavy lift to raise rates three times at the same time they are shrinking the balance sheet,” said Scott Anderson, chief economist at Bank of the West in San Francisco, who sees the median FOMC forecast slipping to two quarter-point increases in 2018. Bloomberg